Gold Bullion
Gold bullion refers to physical gold manufactured in the form of coins or bars (with a high standardised purity) for the purpose of investment. By contrast, gold jewellery is physical gold, but it is not gold bullion because it has a lower purity and its purpose is aesthetic.
Gold bullion’s “purity” is the proportion that is pure gold (excluding impurities). Purity is measured in fineness (parts per 1000). Gold coins usually have a fineness of at least 916.7 and gold bars have a fineness of at least 995.0, but usually 999.9.
Gold bullion’s “content” is the weight of pure gold (excluding impurities). Content is measured in troy ounces. 1 troy ounce equals 31.1035 grams. Be aware that troy ounces (toz) weigh slightly more than normal (avoirdupois) ounces (oz).
Gold Bullion Valuation
The gold price is expressed in dollars per troy ounce and converted to pounds by dividing by the exchange rate (eg $3,500 / 1.35 = £2,592).
Gold bullion’s value is calculated using the following formula:
Value (£) = Gold Content (troy ounces) X Gold Price / Exchange Rate
The difference between the value and price offered by a dealer represents the dealer’s premium, which is typically between 1.5% to 8% and is usually lower the higher the value. Gold bullion does not have VAT on it.
The gold content of coins is usually stated explicitly, so the formula above is used to calculate the value.
The gold content of bars may be stated explicitly, but usually the total weight of the bar (including impurities) in grams and the fineness are stated. So the gold content must be calculated first using the formula below before the formula above can be used:
Gold Content (troy ounces) = Weight (grams) X Fineness (xxx.x) / 1000 / 31.1035
eg What is the value of a 0.25 troy ounce coin, if the gold price is $3,500 and the exchange rate is 1.35 $ per £?
Value (£) = 0.25 X 3,500 / 1.35 = £648.15
eg What is the value of a 100g gold bar (Fineness 999.9) if the gold price is $3,500 and the exchange rate is 1.35 $ per £?
Gold Content = 100 X 999.9 / 1000 / 31.1035 = 3.21475 troy ounces
Value (£) = 3.21475 x 3,500 / 1.35 = £8,334.54
Gold Coins
Gold coins are either “bullion” coins or “collector’s” coins (also called numismatic coins). The value of bullion coins closely reflects the underlying value of their gold content. Supply and demand drives the value of collector’s coins. This website only deals with bullion coins. Many national mints issue gold bullion coins which come with different gold contents. The UK mint issues gold bullion coins known as Sovereigns and Britannias, which are not subject to capital gains tax for UK citizens.
The market for gold bullion coins is very liquid so sellers and buyers can be found easily. Gold dealers will buy gold bullion coins more easily than gold bars, which may need assaying (verifying for gold content) or refining first. Fake gold coins are less common than fake gold bars and easier to identify. Gold coins have the added endorsement of a government mint, which provides a level of guarantee.
The fineness of gold bullion coins varies between about 916.7 and 999.9. The gold content of bullion coins varies between 0.1 toz and 1 toz. The price of gold bullion coins varies between about £300 and £3,000.
Gold Bars
Most gold bars are 999.9 Fine, also expressed as .9999, 9999 or “four nines”. Gold bars are either small bars or big bars. Small bars come in weights ranging from 1g to 1000g. The cost of small bars ranges from about £100 to £100,000. The market for small gold bars is liquid so sellers can be found easily. Small gold bars are available in many different weights. Usually only dealers can spot fake bars which are harder to spot than fake coins. This is because gold bars can be drilled out and filled with an alternative such as lead. As a result assaying (verifying for gold content) or refining may be necessary before a dealer will buy gold bars, unless they supplied the gold bars in the first place.
Small gold bars are manufactured by casting or minting. Casting involves pouring molten gold into moulds. Minting involves precision cutting and stamping. Cast gold bars have a rougher look and offer a lower premium over the spot gold price. Minted gold bars feature a polished uniform finish and carry a higher premium due to the intricate craftsmanship.
Small gold bars can be more convenient for larger value purchases, but you should also consider what denominations you might want to sell the gold in, taking in to account any tax implications as gold bars are subject to capital gains tax.
Big bars (also called good delivery bars) have a standard gold content of 400 troy ounces and weigh about 12kg. Accredited refiners manufacture big bars, accredited vaults store big bars and accredited couriers transport big bars. Due to big bars costing over £1M each, they are not usually suitable for private buyers. However it is possible to buy partial ownership in a big bar.
Gold bars usually have the following information engraved on them – the refiner’s name, serial number, weight and fineness.
When deciding how to buy gold it is worth understanding the history of gold as money.